Small caps remain in the green as crude sell off continues
After kicking off September with a bang, small caps remain in positive territory midday, as oil futures plummeted after Hurricane Gustav proved less destructive than previously thought.
At 12:10 p.m. ET, the Russell 2000 (NYSE:IWM) was up 3.92, or 0.53%, at 743.42, but off its highs.
Crude oil prices took a nose dive today after Hurricane Gustav’s arrival over the weekend spared key energy production facilities in the Gulf of Mexico. Midday, a barrel of light sweet crude has deflated $6.38 to roughly $109. Crude prices were down as much as $10 before the market opening. Oil’s sell off was welcome news for the market, as that potentially points to lower gas prices and eases consumers’ allotment for expenditures on energy. Additionally, the summer, which is marked as a high traveling season, has come to a close, marking the beginning of a period for weaker seasonal demand.
As crude sold off, the dollar surged higher. Midday, the greenback has breached new highs at $1.4526. Aside from crude, more signs of a weakening global economy also pushed the dollar higher. The central bank of Australia slashed interest rates by 25 basis points in an effort to aid a worsening economy. In England, the head of the UK Treasury, Alistair Darling, commented that the country’s economic conditions are the worst in 60 years, while the OECD noted that Britain is the closest to recession in Europe.
The market cheered the rallying, as if continued, would strengthen consumer spending power, which accounts for two-thirds of the economy.
Treasuries were higher, as yields on the 2-year and 10-year sunk, and traders moved out of bonds and into equities.
In economic news, the ISM Manufacturing Survey clocked in at 49.9, slightly above the forecast of 49.6. As it sits today, manufacturing activity is flat. A reading above 50 signifies economic expansion, while anything below 50 points to economic contraction.
As the market rallied, airlines, tires and home improvement retailers were among industry groups leading the market higher, while coal, metals, oil exploration and production and gold were lower.
Technology stocks are also seeing upside today after Google (Nasdaq:GOOG) reported that it will take on Microsoft’s Internet explorer by launching its own browser called Chrome.
Shares of small cap airline stocks are seeing substantial upside after oil futures have tumbled. Shares of United Airlines parent company UAL Corp. (Nasdaq:UAUA) jumped 16%, while shares of US Airways Group (NYSE:LCC) are up 12%.
Individual small caps of note include Sciele Pharma Inc. (Nasdaq:SCRX), which is rocketing in midday trading after the small biopharmaceutical company said Monday that it will be acquired by Japanese pharmaceutical manufacturer Shionogi & Co for $31 per share, or $1.1 billion in aggregate. The buyout price represents a 61% premium over Sciele’s closing price on Friday. This is just another sign that lower stock prices domestically are enticing foreign buyers.
In other small cap buyout news, shares of International Shipholding Corp. (NYSE:ISH) sailed 19% midday in the wake of a buyout offer from Liberty Shipping Group LLC for $25.75 a share in cash. Liberty’s all-cash proposal represents a 27% premium over International Shipholding's closing price of $20.25 on Aug. 29, the last trading day prior to public disclosure of Liberty’s proposal.
